Given the rising cost of living and stagnant wages, it might be difficult to keep financial commitments. Taking out a loan is an easy way to satisfy any financial need, but the fact that banks and NBFCs provide many products for different purposes might be confusing to borrowers. You can utilize an online personal loan app to fill in the gaps in your finances if you have a sudden financial shortfall, or you can use the funds to improve your overall financial situation. There are no restrictions on how you can utilize the money you borrow from personal loans. If you change your mind about how you will utilize an online loan after applying for it and receiving the loan amount, the lender would not have a say in that.
Because personal loans are unsecured, anyone can apply for them. Many people may not have any assets to pledge, such as real estate or other assets. Personal loans may be the only option for people in difficult financial conditions.
Here are the top reasons to take out a personal loan, as well as when they’re appropriate.
- Debt consolidation
- Home renovation
- Wedding expenses
- Travel expenses
- Medical emergency
- Vehicle financing
- Buying the latest gadget, etc.
How does personal loan work?
Obtaining a personal loan has gotten easier and faster thanks to the fintech industry’s growth. Instant personal loans are now available to you easily.
You had to go through a lengthy loan application process and wait for months to acquire the loan you wanted just a decade ago. Today, however, you may apply for a loan online and have the funds deposited directly into your bank account.
Obtaining a personal loan used to include going to a bank branch, filling out a form, and giving hard copies of documents such as proof of identity, residence, income, credit report, and so on. Today, you can apply for an online loan in minutes and upload essential papers using one of the finest online loan applications available on the Google Play or Apple App Stores.
Eligibility calculators are available online to help you determine your personal loan eligibility. In a couple of minutes, the lenders can examine your credit score and analyze your eligibility for a loan.
With an online loan application, you can apply for a loan online and get the money disbursed in your bank account on the same day.
Taking out a personal loan is a significant commitment that necessitates our commitment. While we may believe that a personal loan is the answer to all of our problems, there are certain factors to consider, because a personal loan, like any other product, has benefits and drawbacks.
Pros of personal loan
A personal loan is likely the finest option for funding our ambitions, with lenders willing to lend for any reason. Most other loan products have restrictions on how money may be spent, but a personal loan can be used for anything, including vacations, renovating a home, paying tuition, and so on. This is the reason why personal loans are so popular these days.
A personal loan can be obtained in a short amount of time, thanks to the efforts of banks and non-bank financial institutions (NBFCs). If all of the paperwork is in order, it is feasible to complete all of the formalities and have the loan approved in as little as a day (or even hours). This makes a personal loan the greatest option for financial relief in the event of an emergency or unforeseen occurrence, as it provides quick financial help to those who qualify.
When it comes to getting a loan, collateral or security might be a nightmare. Most lenders want a form of collateral before approving funds, which can make the process lengthy. A personal loan, on the other hand, does not necessitate any kind of security or collateral (in most cases). Individuals who are eligible for the funds are not required to provide security in exchange for the funds.
You have the opportunity to set the loan length when you apply for a personal loan. A maximum of 5 years of tenure is available to you. A shorter loan term results in a cheaper interest rate, but it also results in higher EMIs. As a result, you must choose wisely based on your EMI payment affordability.
Cons of personal loans
High interest rate
The interest rate on a personal loan is greater than on secured loans because it is unsecured. Because personal loans are given without any security, lenders are taking a greater risk. Your interest rate is determined by a number of criteria, including the size of your loan, your income, your credit score, and the amount of EMIs you can pay. When getting an immediate personal loan, you’ll have to pay processing fees once again.
Strict eligibility criteria
When it comes to personal loan qualifying requirements, lenders adhere to strict guidelines. Before evaluating an application, most banks and NBFCs need a particular level of income. Aside from an applicant’s income, his or her credit score is scrutinized, with a poor/average score resulting in an application being refused.
High processing fee
A processing fee of a set percentage of the loan amount is charged by most banks and NBFCs. This fee is often larger than that for a secured loan, implying that the borrower would receive less money than asked.
While borrowers have some freedom in terms of selecting a repayment period, most lenders do not allow adjustments once the period has been selected. This means that the loan cannot be paid in installments or pre-paid; instead, the borrower must pay the complete amount for the entire time. Failure to return the EMIs on time may also result in legal action, which could cause additional problems.
If you need money immediately and can pay it back over a reasonable period of time, a personal loan is a suitable option. However, because its rates are greater than other types of loans, you should carefully arrange your budget. It should be done before taking out a personal loan. If you do your homework, examine your needs. Then arrange your repayments carefully, a personal loan might be a useful tool for you.